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  • Writer's picturePaul Peter Nicolai

DOJ Incents Voluntary Self-Disclosure in Safe Harbor Policy for Mergers and Acquisitions

Under the new policy, companies that timely and voluntarily self-disclose criminal misconduct uncovered during their pre-acquisition due diligence or the integration of the newly acquired entity will receive the presumption of a declination of prosecution from the DOJ.

 

To qualify, companies must self-disclose misconduct they uncover within six months of closing, cooperate with the DOJ during their investigation, and undertake complete remediation within one year from closing. The policy does not apply to misconduct that was otherwise required to be disclosed by law, publically known, or already discovered by or disclosed to the DOJ. The policy does not affect civil merger enforcement.

 

The new M&A Safe Harbor Policy is the latest example of the DOJ’s continuing efforts to encourage companies to voluntarily self-disclose.

 

The scope and conditions of the Safe Harbor policy require:

 

  • Self-disclosure: The acquiring company must voluntarily self-disclose misconduct within six months of the acquisition’s closing date. This six-month deadline applies regardless of whether the misconduct was identified before or after acquisition. A company that fails to self-disclose misconduct within the six-month safe harbor may face potential successor liability for that misconduct. The six-month period does not apply when companies uncover misconduct related to national security or involving ongoing or imminent harm. In those cases, companies are expected to self-disclose upon discovery.

  • Remediation: The acquiring company must fully remediate misconduct within one year from closing and make restitution and disgorgement payments where applicable.

  • Flexibility and Reasonableness: While the policy sets baseline timeframes for self-disclosure and remediation, it emphasizes a reasonableness analysis. This analysis allows for flexibility in extending deadlines based on the specific circumstances of individual transactions, acknowledging that not all M&A deals are alike.

  • Aggravating Factors: Aggravating factors at the acquired company, such as an executive’s involvement in misconduct or longstanding or pervasive misconduct, will not affect the acquiring company’s ability to receive a declination.

  • Recidivism Analysis: Misconduct disclosed under the policy will not factor into the DOJ’s recidivism analysis for the acquiring company, both at the time of disclosure and in the future.

 

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